A magistrate's court cleared Mr Mpinganjira of all four charges relating to a $2 million contract ruling that the state had failed to establish its case.
After the acquittal, spectactors in the courtroom chanted in support of Mr Mpinganjira, the former education minister, who was sacked by President Bakili Muluzi last year.
Before his dismissal, Mr Mpinganjira was a senior official of the United Democratic Front (UDF) and he alleged the trial was politically motivated.
He said the authorities had him arrested on fraud charges after he had threatened to reveal the names of corrupt officials and what he called ''the biggest thief in Malawi''.
The UDF denied that the charges were political.
Opposition rally
On Monday, Mr Mpinganjira said he would not be intimidated by government tactics after riot police broke up an opposition rally in the country's biggest city, Blantyre.
Opposition leaders had just begun speaking when paramilitary police fired rubber bullets and tear gas to disperse the crowd of 10,000.
Our correspondent Raphael Tenthani said there was pandemonium as the huge crowd fled, some to a nearby market and shops in the densely populated township of Ndirande.
Several people were injured in the crush, including children. Angry opposition supporters threw stones at police and looted shops for several hours.
Defiant
The rally organisers, including Mr Mpinganjira also were forced to scramble to safety.
While hiding in a private clinic, Mr Mpinganjira said he would not give up his campaign even if his former government colleagues were working against him.
''This is the relics of dictatorship we are trying to fight,'' he said.
''How can they use state machinery to break up a peaceful rally?''
Court ruling
The police moved against the crowd after the Blantyre city mayor, John Chikakwiya, announced on state radio that he had barred the National Democratic Alliance (NDA), which was set up by Mr Mpinganjira, from holding the rally.
A High Court on Monday had given the NDA permission to hold the meeting despite the mayor's order.